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Kot Addu Power Company Limited (PSX: KAPCO) announced its financial performance for 1HFY21 last week where its earnings were lower by 2 percent year-on-year. The flattish growth in profitability was due to 2QFY21. After growth in earnings in 1QFY21 despite the decline in electricity dispatches with a load factor of 56 percent; the 2QFY21 profit after tax saw a decline of over 20 percent, year-on-year.

Where 2QFY21 was a much better month for KAPCO in terms of revenues; it was a weak quarter for earnings. topline for KAPCO was seen growing by 17.3 percent year-on-year due to a revival in demand and hence higher electricity dispatches in 2QFY21 versus 2QFY20 despite lower prices for both furnace oil and LNG. Overall, the IPP’s revenue for 1HFY21 was down by 23.4 percent year-on-year where both lower dispatches from first quarter as well as lower prices played a role. The decline in the IPP’s revenues for 1HFY21 is not surprising as the restrictions surrounding COVID-19 and the slowdown in the economy impacted power demand; KAPCO’s topline for FY20 were down by around 29 percent year-on-year with over 50 percent decline in 4Q alone. However, KAPCO’s load factors have been still better than the other IPPs as it is multi-fueled running on both furnace oil and RLNG.

While 2QFY21 gross margins were seen declining, the growth in gross profit for KAPCO in 2QFY21 was due to currency depreciation in the second quarter of FY21. But the key factor inhibiting growth in KAPCO’s profits for 2QFY21 was more than 55 percent decline in other income, which was due to lower interest rates and lower receivables. This decline in interest rates also pulled down finance cost.

While the company did not announce a dividend in its recent financial result announcement, the investor interest in the IPPs might be better today compared to last year as the issue of high dollar-based returns have progressed with initiation of Master agreement and an amendment to power purchase agreement. Though the final terms and execution are yet to be approved, KAPCO’s PPA has been extended for 16 months.

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